Ofgem: Energy tariff reforms should 'simplify' market

 

Mike O'Connor, Consumer Futures: "The companies will be banned from doing some rather complex, dodgy deals"

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Changes to energy tariffs designed to create a simpler and clearer market are coming into force.

Regulator Ofgem says its banning of confusing and complex tariffs will help to rebuild consumer trust.

Other changes include limiting suppliers to just four tariffs per customer for both electricity and gas, and simplifying how prices are charged.

Energy UK, which represents suppliers, said the changes would "help people get the best deal" on their energy.

Reforms to energy bills

Energy bills generic

From 1 January:

  • Suppliers limited to offering customers a choice of only eight tariffs: Four for gas, four for electricity.
  • Suppliers must inform customers through bills and other forms of communication on what they have done and what changes are planned in a "Treating Customers Fairly" statement.
  • Simpler structure for tariffs: A unit rate and, if suppliers choose, a standing charge.

From 31 March:

  • Suppliers must inform customers of the cheapest available tariff and how much money it could save them.
  • Introduction of a Tariff Comparison Rate (TCR), likened to APR for interest rates, enabling customers to compare tariffs at a glance. The TCR will be measured in pence per kilowatt hour (p/kWh) and based on consumption of an average user.
  • Bills and tariff quotes to include a "Personal Projection", forecasting what a customer will pay based on their own usage or supplier's best estimate.
  • Every tariff will contain a "Tariff Information Label" allowing customers easier understanding and a simpler opportunity to compare it.

Source: Energy UK

The moves are the result of a Retail Market Review which began in 2010. However, there are claims that energy bills remain complex for those trying to find the cheapest deal.

'Restore consumer confidence'

Further reforms will be introduced by April, including forcing suppliers to tell consumers which of their tariffs are the cheapest.

Ofgem chief executive Andrew Wright said the changes would ultimately drive down prices.

"Profits are not an entitlement, they should be earned by companies competing keenly to offer consumers the lowest prices and the best service.

"Now it is up to suppliers to build on our reforms to restore consumer confidence in the energy market."

He added: "There are good signs that they are taking up this challenge."

Ofgem will produce an annual report to consumers on the health of competition in the market.

It has said it "will not hesitate to take further action" if it sees "evidence of further barriers to competition".

Angela Knight, chief executive of Energy UK, which represents more than 80 energy providers and suppliers, said: "If you look at the market now, the deals are fewer in number and much easier to compare.

"Customers will see improvements to the information they get as a result of energy companies bringing in the changes set out in the Retail Market Review.

"This should help people get the best deal."

'Choice and simplicity'

Richard Lloyd, executive director of consumer group Which?, said that the reforms were "a welcome step in the right direction" but added that they did not solve every issue for consumers.

Energy UK's Angela Knight: "We can't be seen to be an industry that is somehow isolated and separate"

"They just do not go far enough to boost competition and help consumers find the cheapest deals," he added.

Meanwhile, Mike O'Connor, chief executive of watchdog Consumer Futures, said: "It would be naive to assume that this will sort out the energy market out once and for all."

But Ofgem's Ian Marlee told the BBC that the changes were designed with customers' views in mind.

"We are responding to what consumers have told us. They want a combination of choice and simplicity," he said.

However, facing accusations that the paperwork surrounding energy bills still remains complicated, he said that the changes made them simpler, rather than simple.

One consideration for customers trying to find the cheapest deal is that some firms will still levy a standing charge while others will not. This charge is designed to pay for the fixed costs of providing energy such as meter reading and maintenance.

The latest reforms follow the introduction in October of new rules for fixed-term tariffs for domestic customers.

Suppliers are no longer allowed to increase prices during the course of a fixed term and must not automatically roll customers on to another fixed-term offer when their current one ends.

Mr Marlee also said that the regulator was planning changes later in the year that would make the market for buying wholesale electricity more transparent. This would make it easier for small, independent suppliers to buy energy to sell on to domestic customers, which would increase competition.

The comments came after Labour's shadow energy secretary, Caroline Flint, claimed the major energy companies "deliberately inflated" the price they paid for electricity from their own power stations.

But Energy UK said that the research was wrong because the figures could not be compared.

 

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  • rate this
    +3

    Comment number 165.

    My 'fixed price' tarriff is pretty complicated. I pay a higher rate for the first few hundred kilowatt hours and a cheaper rate for all subsequent kwh. However, after examining my bill I noticed they had increased the number of expensive kwh I was paying, effectively increasing the supposedly fixed price. Needless to say I have moved to a small indie supplier who charge the same, but are honest.

  • rate this
    +1

    Comment number 164.

    'Mr Marley also said that the regulator was planning changes later in the year that would make the market for buying wholesale electricity more transparent.'

    Interesting when the biggest & most recent outrage centred around wholesale GAS prices. Another insidious distraction perhaps?

  • rate this
    +1

    Comment number 163.

    156 Trytastic - you know this - I don't. How many of the generla public know it? Admit it, the energy companies, like other privatised utilities, make a LOT from those of us who don't understand their complicated billing and pricing systems.

  • rate this
    -1

    Comment number 162.

    Does simplifying the tariffs really help the customer? if tariffs are deciferable and comparable then lower prices largely occur thro' internal company structure ie redundances and/or marketing effort.
    Tempting for the companies to protect profit, accept customer number status quo and fix prices, concentrating their effort and known expertise on appearing to do none of the previous.

  • rate this
    0

    Comment number 161.

    @29. Can't use rising wholseale costs to justify the increase in bills? You think wholesale costs are even remotely influenced by the UK market?

  • rate this
    +1

    Comment number 160.

    Tim Browning, you are the educationally challenged one, as you obviously do not know the difference between know and no!

  • rate this
    0

    Comment number 159.

    The industry has hidden behind complex bills and over charging for years, combined with exceptionally poor customer services. Energy is a basic resource and human need in the modern age. Energy prices should be regulated such that a monthly household average is established for which the lowest unit price is charged. Any usage above norm should be charged at an increasing rate.

  • rate this
    +1

    Comment number 158.

    Some seem to have forgotten the £50 cut from bils for "hard working familys" at the last Autumn statement for Mr Osborne, its not like we will notice less than £1 a week is it George, The Cartels will look to recoup this £50 from us in other ways. The Gov should start up thier own utilty company, offering the best deals cuts out the middlemen mind they would then sell it..been there before eh.

  • rate this
    0

    Comment number 157.

    My experience is that when you switch the supplier puts you on an unrealistically low monthly direct debit. Then you build up a debt. When you attempt to switch again, you can not afford to pay the debt off so the process of switching becomes difficult.This is what needs to be addressed as its a scam. When you do switch they take the full amount owed from your bank in 1 day leaving you overdrawn.

  • rate this
    +2

    Comment number 156.

    Richard, the conversion of meter units into KWH is pretty simple, meters measure in volume not units, depends on whether you have cubic feet ot cubic metre meter. (cu ft also have to be converted into cu m) multiply by the volume correction factor, and the calorific factor and divide by the kwh rate. 2 simple multiplications and one division,

  • rate this
    -1

    Comment number 155.

    Re comment 84; James - you may be well-intentioned, but families (rich or poor) use more energy than people living alone so it is not clear why you want to penalise them and favour (predominantly) old people living alone, who already benefit disproportionately from state spending because they vote. A fairer solution would be to allocate a per-capita allowance but good luck implementing that.

  • rate this
    +1

    Comment number 154.

    53.RedBus66
    Utility bills may as well be written in Latin because they are incomprehensible. All we want to know is what units we have used, what it costs per unit and what we owe.
    --
    I don't understand.. my bill says exactly that, and always has, as far as I recall. Can you post it on the web and give a link, so we can see how it is so obscure?

  • rate this
    +1

    Comment number 153.

    Nationalisation has its own problems.

    The problem with the current situation is the lack of real competition. The government only need to set up their own supplier running at break even or capped 1% profit margin to force other suppliers to react.

    And with their own practices they'll be reluctant to kick off to the EU about being undercut...

  • rate this
    +5

    Comment number 152.

    EUCiti2en @ 126 said:
    "Are you like me old enough to remember when services were run by the government for the people in the 70's etc - the only problem is I also remember the blackouts, the strikes, the trains never being on time, the moans about the subsidies and the costs and the inefficiencies etc. Must take off my rose tinted yesteryear spectacles."

    Yes, you must.

    Red Robbo's gone now!

  • rate this
    -13

    Comment number 151.

    //James
    Can anyone, anywhere actually show that privatisation helped anyone except shareholders?//

    Rivers are cleaner than they were, energy supplies less prone to cuts except in exceptional circs. BT, BA etc all much better than when nationalised. Nationalised car industry was a joke, brit cars now good.

    NHS nationalised and lethally bad.

    And so on.

    Next.

  • rate this
    0

    Comment number 150.

    Renationalise all energy supply - electricity;gas and water. The "market" does NOT work. Customers are ripped off; shareholder dividends come before investment and customers needs. The recent storms have seen awful levels of immediate response and this Government is seemingly unwilling or unable to take control of the situation.Angela Knight was an awful MP, an awful head Banker now awful here !

  • rate this
    +1

    Comment number 149.

    @127 Disabled Dave - You go to the supermarket you get buy one get one free. You go to the cash & carry (if you can) and buy in bulk at cheaper prices. When some businesses pay £m's a year for energy why should they not get a discount?
    @124 JasonEssex - here you go http://www.bbc.co.uk/news/business-25200808#!

  • rate this
    +1

    Comment number 148.

    This wretched "simplification" is making me worse off, not better, because it has had the effect of banning the prompt payment discount that I previously enjoyed. Thanks a bunch, OfGem!

  • rate this
    +2

    Comment number 147.

    When you're taking home £12k pa or less after tax and only have £10pw for food after BASIC bills it won't reduce cost of living.

    The govt and private sector must reduce the cost of living for the average low paid Brit, be that by lower energy bills or other means or raise wages - if they want money to keep flowing.

    Tinkering with bill formats won't do it!

  • rate this
    +1

    Comment number 146.

    Our gas bill has just increased by almost 43% compared to the same period last year and it has been a relatively mild winter. How can that be justified when you consider the obscene profits energy companies make?

 

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